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DOJ OPINION NO. 105, s. 2002
December 12, 2002

 

Hon. Virgilio R. Delos Reyes
Undersecretary
Policy Planning and Legal Affairs Office
Department of Agrarian Reform
Elliptical Road, Diliman
Quezon City

 

S i r :

        Reference is made to your request on whether or not the first-ranked consulting firm Sanyu Consultants should be disqualified outright in the bidding for the procurement of consultancy services for Mindanao Sustainable Settlement Area Development (MINSSAD) Project in accordance with Section 25 of Executive Order No. 40 1 and its implementing rules and regulations because its financial proposal exceeded the approved budget for the contract.

        As backgrounder, you submit the following factual representations:

1.         Loan Agreement No. PH-P222 for the MINSSAD was executed by the Government of the Republic of the Philippines and the Japan Bank for International Cooperation (JBIC) on 30 May 2001. It was the result of the Exchange of Notes between the Government of Japan and the Philippine Government dated 30 March 2001 concerning financial assistance to be extended in connection with government efforts towards poverty alleviation, economic stabilization and promoting rural development in Mindanao.

2.         Under the said Loan Agreement, the total loan amount for the purchase and/or procurement of eligible goods and services for MINSSAD is Japanese Yen 6,515,000,000.00. For the consultancy services to be procured, the Loan Agreement allocated a yen denominated amount of 992 Million Yen, which is considered by DAR as the Approved Budget for the Contract for Consultancy Services for MINSSAD (emphasis supplied).

3.         The Loan Agreement provides, among others, that the "[E]mployment of consultants to be financed out of the proceeds of the Loan shall be in accordance with Guidelines for the Employment of Consultants under JBIC ODA Loans dated October 1999 (Schedule 4, Section 1 [2], Loan Agreement Ph-P222).

4.         The JBIC Guidelines for Employment of Consultants provide, among others, that:

"Section 1.03.            Responsibilities of the Borrower in Selection of a Consultant.

The selection of a consultant for a Fund-financed project is the responsibility of the Borrower."

"Section 3.07. 2            Contract Negotiations.

(1)     After evaluation of the proposals, the Borrower shall invite the highest-ranked consultant to enter on negotiations on the conditions (including costs and financial terms) of a contract between them.

(2)     If the two parties are unable to reach agreement on a contract within a reasonable time, the Borrower shall terminate negotiations with the first consultant and invite the consultant who ranked second in the evaluation to enter on the negotiations. The Borrower shall consult with JBIC prior to taking this step. This procedure shall be followed until the Borrower reaches an agreement with a consultant.

(3)     While there should be some flexibility in work plans, staff assignment and major work inputs which have been previously agreed on as appropriate for the assignment shall not be materially modified to meet a budget."

5.         The Implementing Rules and Regulations of E.O. No. 40, Series of 2001 provide, inter alia, as follows:

"Section 1.     Scope and Application.

1.1    . . .

1.2    For procurement financed from Official Development Assistance (ODA) funds from International Financing Institutions (IFIs), as well as from bilateral and other sources, the corresponding loan/grant agreement governing said funds as negotiated and agreed upon by and between the Government and the concerned IFI shall be observed."

 

"Sec. 3.         General Guidelines on Procurement Reforms and Definition of Terms

 

3.2    . . . . Whenever consulting services for government projects are to be financed from foreign sources, the same shall preferably be funded from foreign grants, and the agreements covering such foreign grants shall as much as possible adhere to these IRR. Likewise, for consulting services funded from foreign loans and credits, conditions in the loan agreements with the foreign governments or lending institutions shall be in full conformity with these IRR except as may otherwise be authorized pursuant to Section 4 of Republic Act No. 4860, as amended (R.A. No. 4860), otherwise known as the 'Foreign Borrowings Act'."

 

"Sec. 17.       Eligibility Check and Short Listing of Prospective Bidders for Consulting Services

 

17.4.3           In the hiring of foreign consultants, all pertinent laws and regulations of the Philippines shall be followed. The requirement of technology transfer must be emphasized." (emphasis supplied)

 

''Sec. 24        Bid Evaluation of Short Listed Bidders for Consulting Services

 

 

24.4  Quality-Based Evaluation Procedure

 

24.4.2           After approval by the head of agency and/or after concurrence of the IFI concerned, in the case of foreign assisted projects, of the Highest Rated Bid, the BAC shall within seven (7) calendar days notify and invite the consultant with the Highest Rated Bid for negotiation. The financial proposal of the consultant with the Highest Rated Bid shall then be opened by the BAC in the presence of the consultant concerned for the purpose of conducting negotiations with the said consultant. In the letter of notification, the BAC shall inform the consultant of the issues in the technical proposal the BAC may wish to clarify during the negotiations. When the negotiation with the first in rank consultant fails, the financial proposal of the second in rank consultant shall be opened for negotiations, and so on; provided that the amount indicated in the financial envelope shall be made as the basis for negotiations and the total contract amount shall not exceed the amount indicated in the envelope and the approved budget for the contract as stated in the Invitation to Apply for Eligibility and to Bid."

"Sec. 25.       Ceiling for Bid Price.

The approved budget for the contract under bidding shall be the upper limit or ceiling for acceptable bids. All bids, as evaluated and calculated in accordance with these IRR, which are higher than the approved budget for the contract under bidding, shall automatically be disqualified. There shall be no lower limit or floor on the amount of the award." (emphasis supplied).

        You state that the DAR Negotiation Panel is set to proceed with the negotiation of the financial proposal of the first-ranked consulting firm, Sanyu Consultants, Inc. in accordance with the JBIC Guidelines for the Employment of Consultants, subject to the condition that the propriety of negotiating with the first ranked consulting firm be confirmed by this Department.

        You proposed that in the event that this Department confirms the propriety of the conditional negotiations with the first ranked firm, any and all negotiation proceedings undertaken by DAR with Sanyu Consultants Inc. shall be recognized. However, if this Department opines that negotiation with Sanyu Consultants, Inc. is legally inappropriate under existing and applicable laws, rules and regulations, the negotiation with the said firm shall not have any effect, and the firm shall be accordingly disqualified.

        In giving the opinion below, this Department has made the following assumptions: (1) that all documents submitted to this Department as copy or specimen documents conform to the originals thereof; (2) that all documents have been validly authorized, executed and delivered by all the parties thereto; (3) that the minutes of the meetings contain the actual events that transpired during such meetings; (4) that the signatures on the originals of all documents submitted are genuine; and (5) that the factual representations made in the documents are true, correct and accurate. This Department has not taken into account the financial and technical merits of the Contract because they are within the official competence and jurisdiction of the National Economic and Development Authority (NEDA).

        Subject to the foregoing statements and having regard to the applicable laws and rules and regulations on the matter, including the documents as this Department deems relevant, this Department is of the opinion that the first ranked firm is automatically disqualified since the bid ceiling is exceeded.

        It should be noted that the Loan Agreement allocated a yen denominated amount of 992 Million Yen for consulting services and which is considered by DAR as the Approved Budget for the Contract for Consultancy Services for MINSSAD. Also, it is clear from the Loan Agreement that the employment of consultants to be financed out of the proceeds of the loan shall be in accordance with the JBIC Guidelines dated October, 1999. The said Guidelines categorically states that selection of the consultant shall be the responsibility of the GOP (DAR) and that after evaluation of the proposals, the "highest-ranked consultant shall be invited for negotiation on the conditions of a contract.

        On the other hand, Section 3.2 of the IRR of E.O. No. 40 specifically provides, among others, that for consulting services funded from foreign loans and credits, conditions in the loan agreements with the foreign governments or lending institutions shall be in full conformity with the said IRR.

        Section 17.4.3 of the IRR also provides that the amount indicated in the financial envelope shall be made as the basis for negotiations and the total contract amount shall not exceed the amount indicated in the envelope and the approved budget for the contract as stated in the Invitation to Apply for Eligibility and to Bid.

        Further, Section 25 of the same IRR states that the approved budget for the contract under bidding shall be the upper limit or ceiling for acceptable bids, and all bids, as evaluated and calculated in accordance with the IRR, which are higher than the approved budget for the contract under bidding, shall automatically be disqualified.

        Take note that under the JBIC Guidelines, the selection of a consultant shall be the responsibility of the Borrower (GOP/DAR in this case). As pronounced under this Department's Opinion No. 75, s. 2002 "[T]his clearly imposes a duty upon the Borrower-agency to see to it that the selection process under its law, if there be any, is followed."

        Thus, it would be legally inappropriate to continue or proceed with the negotiations with the first-ranked firm considering that its financial bid indicates an amount higher than the bid ceiling. Based on the provisions of the JBIC Guidelines and the pertinent provisions of E.O. NO. 40 and its IRR, there is no other recourse but to disqualify outright the said first-ranked firm since its financial proposal exceeds the bid ceiling as approved by DAR.

Very truly yours,

(SGD.) MA. MERCEDITAS N. GUTIERREZ

Acting Secretary

 

Footnotes

  1.       Consolidating Procurement Rules and Procedures for All National Government Agencies.

  2.       Should read Section 3.08.



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Quezon City, Philippines
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